Price Anchoring: How to Secretly Train a Customer To Willingly Spend More
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Today I want to talk about some sales psychology.
Yes, I know that sounds boring.
Which is why I’ve come up with the super-fantastic title of “Price Anchoring: How to Secretly Train a Customer to Willingly Spend More.”
Some of the games people play when it comes to pricing products can be pretty wild.
From the brutal bait & switch to the more subtle price anchoring, sales strategies and techniques run the full gamut between greasy and clever.
I’ll let you be the judge of where price anchoring falls on the scale of “evil genius” to “just genius.”
Buying a car can be quite an event.
And car salespeople get a bad rap.
But let’s be honest – some fit the stereotype of a greasy used car salesman and some are as honest and forthcoming as a, well…. really good person?
I was trying to come up with a perfect example of honesty and integrity but with every example I thought of, I had 2 or 3 examples of bad ones come to mind as well.
Anyways… I remember when I was looking to buy a Jeep.
I was looking for a 4 door Jeep Wrangler Rubicon – you know, the ones that look a bit like a small military vehicle with a few tasteful modifications.
So with that in mind, one day I headed out to a local dealership.
Within 15 seconds, of walking onto the lot, I had a salesman that we’ll call “Frank” (not his real name) come trotting over to introduce himself.
Frank: “Hi! How are you doing today? My name’s Frank.”
Me: “I’m doing great, thanks Frank. I’m Matt.”
Frank: “Nice to meet you Matt. Is there anything I can help you with?”
Me: “Well Frank, I’m looking for a 4 door Jeep Wrangler Rubicon.”
Frank: “Ok great. We’ve got a few of those. Did you have a certain budget in mind?”
Me: “Around $30,000.”
Frank: “Ok, any particular colors or options you’re looking for?”
Me: “Well, it has to have a standard transmission….and for color? Basically anything other than white or silver.”
Frank: “Got it. I think we’ve got a few I can show you… Right this way.”
We began to weave in and out of the cars on the lot with Frank in the lead until we arrived at a brand new 4 door jeep.
It was white, had an automatic transmission and cost $50,000.
Frank pointed to it – grinning from ear to ear like he had just found the lost ark of the covenant – turned to me and said, “What do you think?”
In situations like this, I feel I have to be honest.
So I told him.
“Well Frank, it’s way over my $30,000 budget, I asked for one that had a standard transmission, and I just finished telling you it could be almost ANY color other than white.
So to be honest, I’m not quite sure why we are standing here looking at this one.”
He didn’t hesitate for a second or even blink at my brutal honesty.
“Ok, no problem Matt. I think we’ve got a couple others here that I can show you that might be a better fit for you.”
And off we went, retreating deeper into the car lot in search of these other Jeeps.
We actually did find a couple others that were a much better fit as far as what I was looking for.
Although… they were still a bit more than I wanted to spend.
One was about $37,000 and the other $35,000.
Both were still over my budget by more than 15%, but after having seen the first Jeep for $50,000 they seemed like a bargain – cheap almost by comparison.
After having looked at the Jeeps I left the lot to further contemplate what the best option was.
In the end, we bought a pickup truck as it was a better for what I wanted to do.
But I never forgot good old Frank and his antics.
And it got me thinking, “At the risk of looking like a complete idiot – or at least looking like he wasn’t listening at all to what my needs were – Why did he show me the first Jeep that wasn’t even close to what I had asked for?”
Well, turns out that Frank wasn’t a complete idiot.
In fact, he was pretty smart.
And it was because of the concept of “Price Anchoring.”
The idea is this – the first price that we are shown for a product becomes the “ANCHOR” that we evaluate future decisions against.
Psychologists have found that we tend to rely too heavily on the first piece of information that we are offered.
In this case, Frank used the highest price he could find for a Jeep – $50,000 – to set the anchor, knowing that if he showed me Jeeps that had a lower price after that, I would see them as being an incredible bargain.
And it worked.
He didn’t make the sale, but by comparison, I left the lot thinking that the two other Jeeps he showed me were a better value when compared to the $50,000 Jeep.
Sure, you can argue that age, features, options, mileage and so on all play a part in the total price and perceived value of a car – but for most people the number one obstacle to overcome is price.
Once Frank had established that the other Jeeps were much cheaper, the options they lacked or the age they were didn’t seem to matter nearly as much, as everything else paled in comparison to the dramatic price difference.
And this sort of thing happens all the time.
I shouldn’t even be telling you this stuff.
But some companies have even gone to the trouble of creating a super-premium, over the top expensive product that they don’t even intend to sell – just so all the other products they offer seem like a bargain in comparison.
Some restaurants have even gone so far as to have a super-expensive item on their list that they advertise as “Being the Most Expensive in the World.”
They do this because, first of all, it gives them a news-worthy angle that they can float out to the public or bloggers in a news release to get some PR, and second, because they can then advertise this on their menu (whether people buy it or not) so that everything else looks cheap in comparison.
Do an internet search for the “$100 burger” – you see all sorts of examples of this come up.
Still don’t believe me?
The next time you’re in a restaurant, look at the appetizer menu.
Notice that the appetizers are WAAAAAY more expensive than the entrees when you factor in the quantity of food you receive verses your main course.
This is a win-win for the restaurants.
If you buy an appetizer, they make huge margin on them.
But the bigger win is that as a result of the appy’s being more expensive, it allows them to jack the price of the main courses by a few bucks to increase the profit on them.
It’s all gravy…..Horrible pun absolutely intended.
Realtors could do this too.
If they start by showing you a super expensive home that quote-unquote ticks all of the boxes on your wishlist, it anchors the higher price in your mind, and anything else they show you looks to be an incredible deal by comparison.
A price anchoring tactic like this puts the seller in the perfect spot.
If they show you the most expensive option, and you buy it – they win.
If they can calm you down after the mild heart attack they gave you with the first high-priced option, anything they can show you after that (even if it is a bit above your initial budget) seems like a steal of a deal.
Even if you lose it and start accusing the salesperson of spending more time worrying about where he can buy his next pair of designer socks than trying to listen to what your needs might be, all they have to do to get themselves off the hook is float you the line:
“I just wanted to show you what is available that covered everything on your wishlist – but I hear what you’re saying, and I think I’ve got some other options that could be a perfect match for you.”
Now, as I said – you can be the judge as to where price anchoring falls on the morality scale.
Just remember, if you do try to use this tactic, you’ve got to offer options that are at least SOMEWHAT realistic.
If I went into the dealership and Frank had shown me a $300,000 Rolls Royce, the tactic wouldn’t have worked.
Or even if he would have shown me a brand new Jeep that was heavily modified for about $80,000, that probably wouldn’t have worked either.
Your anchor needs to fall into the arena of believably for it to be considered as an option and function as a proper anchor.
And if you try to use this strategy and can’t set an anchor, you’ll find yourself quickly drifting further away from the possibility of making a sale.
Here’s to increasing profit margins and the bottom line using soft sales techniques.
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I hope you got something out of this podcast.
An idea you can use.
A different thought or viewpoint.
Or maybe you found it mildly amusing.
At any rate, can you refer this podcast to one other person you think might find it entertaining or useful?
Because I want to help as many people as I can, in as short a time as possible.
Here’s something to listen to while you think about it…
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